There are two ways to say sustainability: you can use 30 or so words or just one. For most dictionaries, sustainability “in environmental sciences and economics is the condition of development that manages to meet the needs of the present without compromising the ability of future generations to meet their needs.” The other definition, which is equally valid, can be summarised thus: value.
In a nutshell, this was the message to investors, financial analysts and the media on 26 November in Milan at Capital Markets Day 2019, during which Francesco Starace and Alberto De Paoli, respectively the Enel Group’s CEO and CFO, presented the 2020-2022 Strategic Plan, which was condensed into an equation as simple as it is powerful: sustainability equals value.
The strength of this equation, Starace explained, has been evident over the last five years, during which our sustainable and integrated business model has fostered the creation of value in the context of the energy transition. The year 2015 marked a revolution in the Group’s business model with the abandonment of large-scale investment in conventional power plants in favour of more flexible growth, principally in the renewable energy sector. This decisive shift towards sustainable business practices has led to net increases in earning visibility, while simultaneously reducing the Group’s risk profile, thanks to a reduced exposure to the fluctuations in commodity prices.
Enel’s excellent records
In 2015 we reached the record target of 1 GW of new renewable capacity installed in one year, and we increased that figure to 3 GW as early as 2018: this acceleration has enabled us to expand our total renewable installed capacity from 37 GW to 46 GW. In doing so we have become a global leader among private operators.
The Enel Group has also made considerable investments in the digitalisation of its distribution networks in order to maximise their efficiency, reliability and resilience.
Furthermore, we have focused on the creation of new services and infrastructure with the founding of the new global business line Enel X, which is now the world leader in demand response. Thanks to these efforts, today Enel is the world’s leading private operator in terms of the number of users connected to its networks and it similarly boasts the largest customer base of retail clients.
The results of this sustainability-oriented strategy are clear: all of the targets of the 2015-2019 Plan were met, or rather, exceeded. For example, EBITDA reached 17.8 billion euros, compared with the target figure of 17 billion, and operating efficiency, which was originally fixed at 1.1 billion euros, actually reached 1.5 billion.
Thanks to the new strategic positioning of the Group, Enel’s total shareholder return in the period 2015-2019 exceeded 130%. This was also due to the doubling of the share dividend (passing from 0.16 euros to 0.33) and the increase in the share price, which has made our Group the leader in terms of capitalisation among Italian companies and European utilities. These are clear signs of how the integration of sustainability into the strategy has contributed to the creation of value.
Decarbonisation and electrification: the vision of the future
With this scenario as our starting point, the strategy for the future is even more oriented to decarbonisation and the electrification of consumption, enabled by further development of the network infrastructure, ecosystems and platforms.
This strategy has at its core sustainability, through the clear identification that every investment leads to the attainment of the SDGs, the Sustainable Development Goals outlined in the United Nations 2030 Agenda, and in particular SDG7 (“Affordable and Clean Energy”), SDG9 (“Industry, Innovation and Infrastructure”), SDG11 (“Sustainable Cities and Communities”) and SDG13 (“Climate Action”). Indeed, of the 28.7 billion euros of total investment planned for the next three-year cycle, roughly 95% will be designated to projects that work towards achieving these four SDGs.
“We have reached the point at which we are all required to tackle the shared challenge of decarbonising the energy sector,” explained Starace. “And saying that we are all involved means that sitting on the fence is no longer an option. The energy transition is a phenomenon that we had already foreseen back in 2012, and in recent years we have focused on developing the skills required to enable our business model to take full advantage of the opportunities that the transition offers now and will offer in the future.” The current year, according to Enel’s CEO, represents a watershed moment, which will see a considerable acceleration of current trends. “Today we are seeing our predictions come true.”
In detail, concerning decarbonisation the Strategic Plan for the next three-year cycle includes 14.4 billion euros of investments. Almost all of them are in the development of our green power portfolio: an annual average level of developed renewable capacity of 4.7GW is forecast, for a total of 14.1 GW during the period from 2020 to 2022. This will bring the percentage of renewables in terms of overall installed capacity from the current 50% to 60%. Furthermore, for 2030 the Enel Group has set the goal of reducing CO2 emissions by 70%, compared with 2017 levels.
All of this will be guided by a new business line, Global Power Generation, which will combine thermal generation and renewables in a single structure. For Starace, this will “improve synergies and take full advantage of the opportunities linked to renewables and the other technologies necessary for the energy transition. It will boost the momentum behind both the progressive abandonment of coal and the promotion of the spread of renewables, while providing solid support on our journey towards complete decarbonisation by 2050.”
Around 1.2 billion euros will be designated to investments to encourage the electrification of consumption, leveraging the growth of the retail client base, while 13 billion euros will be assigned to enabling factors for the energy transition: network infrastructure, ecosystems and platforms. Between 2020 and 2022 Enel will continue to invest in the digitalisation of the networks, increasing the number of second-generation smart meters installed from 13 million to 29 million. Furthermore, through Enel X the Group will respond to the growing demand for value-added services, for example through the installation of approximately 650,000 new public and private electric vehicle charging points, thereby increasing the capacity of demand response managed up to 10.1 GW and storage systems up to 439MW.
Finally, at global level Enel will adopt a platform-based model for its networks, retail and Enel X. This will bring about the standardisation and optimisation of operational processes, in order to reach the efficiency targets outlined in the Plan, and the creation of new business opportunities.
Thanks to all the investments outlined in the Plan, Enel’s EBITDA will reach 20.1 billion euros in 2022, with an increase of 13% on the 17.8 billion euros expected in 2019.
The concept of sustainability for the Enel Group is not just a slogan but, as Director of Communications Roberto Deambrogio explained, “a cornerstone on which 100 per cent of our Strategic Plan has been built.” For this reason we also plan to integrate it to an increasing extent into our financial activities with the aim of extending the use of sustainable finance instruments to cover total debt, from the current 22% to 43% in 2022, and to 77% in 2030. In particular, debt will be financed mainly through bonds linked specifically to the SDGs, which will offer considerable benefits. This has already been demonstrated by the issuing of two bonds (for almost 4 billion euros) connected to the 2030 Agenda goals, issued in September and October. As Alberto De Paoli stressed, these bonds have already ensured our Group a saving of 20% compared with traditional bonds. “This represents an important acknowledgement by the market of the value of sustainability,” explained Enel’s CFO.
Creating value for shareholders
The reduction of the average cost of finance, which will fall from 4.2% to 3.8% during the three years, plus the simplification of the Group’s structure and the afore-mentioned operational performance, is set to lead to an increase of 27% in the Group’s ordinary net profits income, which will reach a figure of 6.1 billion euros in 2022.
The solidity of Enel’s strategy and the faith in reaching the targets, supported by a further reduction to the Group’s risk profile, will lead to an increase to the minimum dividend of 1 euro cent per share in 2020 and 2021, compared with the target outlined in the previous Plan. This is in addition to fixing a new minimum dividend of 0.40 euro per share in 2022, an increase with respect to the figure 0.32 euro per share in 2019.
“The sustainable concept”, explained Starace, “has enabled us to do three things so far: one is to kick up an innovation curve that otherwise would not be possible to start; the second is to avoid mistakes - we ruled out a lot of projects beacuse of the lack of sustainable content in them; and third it reduced the cost of financing through the results of these sustainable development bonds. Going forward I think we can probably see sustainability becoming more a tangible value, both in terms of financial results and as an important factor for the reduction of risks but also in the fact that, we can avoid other risks.”
Oscar Wilde once commented on knowing “the price of everything and the value of nothing.” At Capital Markets Day the message was very different. We know very well the value of sustainability. And we also know that it’s priceless.